Sugar v. Estate of Stern, — So.3d —-, 2015 WL 5603469 (Fla. 3d DCA September 24, 2015)

fool-me-once-shame-on-you-fool-me-twice-shame-on-me-quote-1
BONUS MATERIAL: You can access the 3d DCA’s video of oral argument for this case. Just click here, then enter case number 14-1433 in the search box, then press the search button. When you see this case listed, click the link to download the file to your computer.

One of the big selling points for settling disputes is finality: you may not have gotten everything you wanted, but at least it’s over. Not so in this case. As noted by the 3d DCA, the four sisters involved in this “bitter, expensive, and divisive intra-family dispute” have been locked in heated litigation for years after presumably settling their claims not once — but twice — in two related settlement agreements, both executed in 2011. Ever since then they’ve been litigating over exactly what it was they agreed to!

I first wrote about this case in 2013. Then the issue was whether a settlement agreement could be “reformed” to correct a mutual drafting mistake (as I reported here, the 3d DCA said “yes,” it can). This time around the key issue was whether a settlement agreement can be re-written after the fact based on one side’s alleged oral misrepresentations and/or lack of full disclosure during the settlement negotiations leading up to the written contract.

Case Study:

In 2005 the decedent transferred approximately $350,000 from her account in Bank Leumi in Israel to the appellants’ family. Now fast forward to 2011; the decedent has been adjudicated incapacitated and three of her daughters (the appellees) are locked in litigation with the decedent’s fourth daughter and her husband (the appellants). Both sides accused the other of misappropriating mom’s funds. These accusations lead to litigation and the two settlement agreements at issue in this case.

According to the appellees, during settlement negotiations one of the appellants denied knowing anything about any Israeli account. Based in part on that oral representation the parties settled their disputes in 2011, exchanging mutual global releases/waivers. Bank Leumi didn’t release information about the $350,000 transfer until 2013. When this information came to light, the appellees apparently went through the roof. The appellants were hauled back into court, where they were ordered to “disgorge” the $350,000 transfer back to the estate because “they did not make a full disclosure.” Not so fast said the 3d DCA, reversing the disgorgement order on several grounds. The two I found most interesting are great real-life examples of what NOT to do when settling a case. Both boil down to one simple rule: GET IT IN WRITING!

Oral representations = NO evidence:

The final written settlement contract in this case stated it was “based upon the representations of the parties as of the date of the settlement,” but did NOT (a) incorporate those specific representations into the written agreement or (b) attach them or refer to separate writings detailing those representations. According to the 3d DCA, if you don’t get the specific representations in writing (e.g., there are no accounts in Israel), they’re meaningless. Why? Because you can’t use oral statements made during settlement negotiations as evidence. They’re privileged. Which means for litigation purposes, they basically don’t exist. So saith the 3d DCA:

[Oral representations made during settlement negotiations have] no apparent evidentiary foundation in a later attempt to avoid the settlement terms because of alleged misrepresentation. Statements during settlement negotiations concerning liability, the absence of liability, or value, are privileged and inadmissible in subsequent proceedings in the same case. § 90.408, Fla. Stat. (2014); see also Bern v. Camejo, 168 So.3d 232, 236 (Fla. 3d DCA 2014); Agan v. Katzman & Korr, P.A., 328 F.Supp.2d 1363, 1372 (S.D.Fla.2004).[FN6]

[FN6]: The common way to bar the attempted resurrection of alleged representations during settlement negotiations is the use of a merger/integration provision in a written settlement agreement.

By the way, the 3d DCA’s advice about incorporating integration clauses into our settlement contracts is good, but it doesn’t go far enough in my opinion. I’m also a big fan of including anti-reliance and anti-sandbagging clauses, both of which are explained in a great ACC slide presentation entitled Avoiding and Resolving Contract Conflicts – Integration Clauses.

3d DCA: “Fool me once, shame on you; fool me twice, shame on me.”

There’s no excuse for lying during settlement negotiations, but then again there’s also no excuse for getting duped again by not documenting the lie in your written contract. “Fool me once, shame on you; fool me twice, shame on me.” So saith the 3d DCA:

[A]fter the assertion of claims involving dishonesty, the claimant in negotiations culminating in a settlement and release cannot rely on oral representations made by the party already asserted to have been dishonest. Finn v. Prudential–Bache Sec., Inc., 821 F.2d 581, 586 (11th Cir.1984); Sutton v. Crane, 101 So.2d 823 (Fla. 2d DCA 1958); Columbus Hotel Corp. v.. Hotel Mgmt. Co., 156 So. 893 (Fla.1934). This is as simple as the adage, “fool me once, shame on you; fool me twice, shame on me,” but was expressed more eloquently by Justice Davis of the Supreme Court of Florida in Columbus Hotel Corp.:

And, where parties are given to understand that they are dealing at arm’s length in the compromise of an already existing controversy that itself comprehends charges of legal fraud, misconduct, and dishonest suppression of material facts, as was the situation with the parties now before this court in the instant proceeding, there arises no duty on the part of one of the antagonists to reveal his own peculiar situation to his adversary, on pain of being held liable for fraudulent concealment of facts if he does not do so.

156 So. at 902 (emphasis omitted).

“It ain’t over till it’s over.” – Yogi Berra

After all these years and two appellate decisions, it looks like this estate has yet to see its final day in court. As reported by the Daily Business Review in Fight Over Big Estate Draws Fire for Running Up Legal Fees, both sides are gearing up for continued litigation:

Sugar said Stern’s $12 million estate has dwindled to about $6 million on mounting legal fees and court costs.

“Hopefully this decision will bring finality and stop the bleeding of legal fees from what we thought were baseless claims,” said Sugar’s attorney, Michael Schlesinger of Schlesinger & Associates in Miami. . . . “It’s a shame that all these fees were paid out of the estate to challenge a settlement that was final in 2011.”

The Sugars won’t walk away without trying to recover that money.

Schlesinger said they’ll now turn their attention to forcing their in-laws’ attorneys to “disgorge the sizable legal fees and compensation paid to them.”

The three sisters, meanwhile, also aren’t likely to retreat. They are gearing to pursue litigation over taxes owed on funds in the Israeli account.

Stay tuned for more . . .